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The healthcare sector, along with its many sub-industries, has taken a leadership role in the market again in 2017. The strength in the sector can be attributed to a few things.
First, the sector is benefiting from the lack of volatility that had been tied to a potential overhaul of the regulatory environment. Investors are feeling much surer of their outlooks as the political rhetoric continues to subside.
Second, these companies are beginning to show profits and revenue growth again, something that hasn’t been consistent for more than a year.
The resulting cash that is flowing back into the sector brings with it many opportunities to buy some names that have strong double-digit growth potential for the second half of 2017.
Explosive Healthcare Stocks to Buy: Quest Diagnostics (DGX)
Click to Enlarge Quest Diagnostics Inc (NYSE:DGX) has been one of the low volatility price leaders of 2017 along with paying a dividend of 1.7%. The stock remains a “strong buy” according to the current model readings.
Last week, DGX announced earnings that beat expectations with a positive outlook. The stock has been trading in a technically strong pattern since February 2016.
Investors sentiment has been discounting the stock as the short-interest patterns and the analyst rankings both underestimate the strength of the stock’s rally. DGX stock dropped about 3% after the positive report as the “sell the profit” crowd added to pressure. On an intraday basis though, the 100-day moving average almost came into play, but some clear program-trading came in twice through the day to buoy the stock back to its 50-day.
A break above the 50-day will put DGX back into rally mode and bring more upgrades (currently only 22% of the analysts covering the stock have it ranked a “buy”).
DGX stock looks attractive with a $120 price target.
Explosive Healthcare Stocks to Buy: Baxter International Inc (BAX)
Click to Enlarge Baxter International Inc (NYSE:BAX) shares continue to move higher through the year, returning 37% year-to-date. Baxter’s performance comes on the backdrop of a positive fundamental picture and some clarity on the regulatory front after the Donald Trump administration took office.
More powerful is the bearish sentiment toward this market leader. Currently, only 23% of the analysts covering the stock have it ranked a “buy,” while eight actually have it ranked a “sell.” This on a stock that is outperforming the market strongly.
Short sellers have been closing their positions on the stock, which has helped to drive the stock even higher, but we’re expecting the analyst recommendations to really drive things here in the second half of 2017.
With technical support currently sitting at $60, Baxter International shares should see some buyers begin to come in to support Baxter shares over the short term. BAX stock has been trading at its highs, so there is little overhead pressure to keep them from moving to our target of $70.
Explosive Healthcare Stocks to Buy: AbbVie Inc (ABBV)
Click to Enlarge Dipping into the biotech stocks, AbbVie Inc (NYSE:ABBV) is a standout as the company has been able to maintain some low-volatility leadership. Something that most of the biotech companies haven’t been able to pull off.
AbbVie is trading 11% higher for the year, as ABBV stock trades strongly in a leadership role since the rally that kicked-off in May. Recently, the stock has pulled back to a critical technical test that will give us an idea of the market’s willingness to buy this stock on a dip.
Last week, after earnings, AbbVie shares pulled back to their 50-day moving average, where they are holding a bull/bear battle. A successful hold of this powerful trendline will signal that the “trend is the friend” of AbbVie, attracting more bulls into the stock.
Analysts still dislike the stock, with only 36% of those covering it rating the stock a “buy.” The continued technical success and outpacing of the market’s gains will change that as we should expect to see analyst upgrades help to drive prices higher.
Our models hold an intermediate-term bullish outlook on AbbVie with a target of $80.
Explosive Healthcare Stocks to Buy: Biogen Inc (BIIB)
Shares have been trading in a long-term range that looks ready to break and allow the stock to move higher. Chart watchers will be monitoring the $295-$300 range, as this is where the stock has failed to break higher on a regular basis. This time around, the stock has more momentum, which should increase the odds of a breakout.
We’ve been watching the dollar balanced volume on Biogen and noted that more cash is flowing into the company. This suggests that the momentum should be more reliable with fewer traders looking to sell into the strength of that top.
Sentiment supports further growth as the analyst recommendations remain somewhat low. Currently, 60% of the analysts covering the stock have it ranked a “buy,” which allows for some upgrade potential.
The break through $300 will strengthen the bull market trend for Biogen shares and target another 15%-20% move in the second half of the year.
Explosive Healthcare Stocks to Buy: Express Scripts Holding Company (ESRX)
Click to Enlarge A little further down the list, in terms of year-to-date performance, is Express Scripts Holding Company (NASDAQ:ESRX). The company has lost 8% year-to-date, but out models are picking-up on a potential turnaround that should have the bulls interested.
Express Scripts stock recently moved above their 50-day moving average, which is now transitioning into a bullish pattern. This suggests that the stock is amid a technical turnaround that will attract investors, both long and short term.
Sentiment is decidedly bearish as the analyst community has shunned the stock with its 35% “buy” recommendations. Additionally, the current short interest ratio on Express Scripts stands at 11.5. This means that the stock is set for a short covering rally.
A positive earnings report has Express Scripts shares trending higher with the likelihood of analyst upgrades and short covering acting as an additional catalyst. Our models target a price of $72.
Explosive Healthcare Stocks to Buy: AmerisourceBergen Corp. (ABC)
Click to Enlarge The healthcare sector, including pharmaceuticals, has been resuscitated as investors and traders are beginning to see some resolution and more clarity of what, if any, regulatory changes could occur. This has affected the sector, including AmerisourceBergen Corp. (NYSE:ABC) positively, as cash is beginning to flow back into these companies after years of them being avoided by investors.
AmerisourceBergen is a pharmaceutical sourcing and distribution services company that services healthcare providers and pharmaceutical development companies. Like many stocks in the sector, it has been range bound over the last year or two, but the technical picture has been on the mend. This is what attracts investors to the group.
Pessimism runs abound on AmerisourceBergen shares, as only 33% of the analysts covering the stock rank it a “buy” and the current short interest ratio for the stock stands at 14. This means that we are likely to money flow into the company as the technical patterns continue to improve and the bears turn into bulls. For its third-quarter report Aug. 3, analysts expect flat year-over-year growth to $1.37 in per-share earnings and a 6.2% sales bump to $39.16 billion. Just remember, ABC has surprised in the past six quarters.
Watch for a break above $98 to give the stock a real boost and head toward our target of $105.
Explosive Healthcare Stocks to Buy: Varian Medical Systems (VAR)
Click to Enlarge Healthcare and healthcare equipment companies had a tougher go in 2016 as the market concerned itself with the political climate. Potential changes to the regulatory environment for all healthcare related companies had investors on edge. The exact kind of activity that generates high-pressure earnings buys, such as Varian Medical Systems, Inc. (NYSE:VAR).
The stock recently emerged from a consolidation period to engage in an intermediate-term bullish trend. This immediately resulted in an upgrade to VAR shares ahead of the earnings announcement. Specifically, the stock saw technically engaged buyers enter the market as earnings approached with the 50-day moving average transitioning into a bullish trend.
Our model has detected added potential pressure from the short-selling crowd as the already high short interest saw a last minute push higher as the short interest ratio for VAR shares surged to a reading of 16. This is the highest reading of the short interest ratio in more than two years and adds pressure to variant shares for a short-covering rally.
Considering the technical strength and pessimistic backdrop, our models are targeting a move to $115.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.